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FHFA Lawsuit on Appeals Court Radar

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As per Reuters, a joint petition was filed with the 2nd U.S. Circuit Court of Appeals in New York by 15 leading banks, which were dragged to court by the Federal Housing Finance Agency (FHFA) over sale of perilous mortgage debt. The petition was filed as the banks alleged unfair handling of the litigation by the trial court judge.

The banks accused the U.S. District Judge Denise Cote of deliberately holding back evidence with which the latter could have pleaded their case. The banks also blamed Cote of issuing filings that were aimed at compelling settlements. Therefore, the banks have sought the help of the Appeals Court to give the lawsuit a fair chance.

The banks including JPMorgan Chase & Co. (JPM - Free Report) , UBS AG (UBS - Free Report) , Citigroup Inc. (C - Free Report) Barclays PLC (BCS - Free Report) , Deutsche Bank AG (DB - Free Report) and Bank of America Corporation (BAC - Free Report) have demanded a reversal of the judge’s rulings and requested access to information that Fannie Mae and Freddie Mac had before they obtained the risky loans (prior to the 2008 financial meltdown).

FHFA had filed the lawsuits in 2011, accusing the banks of selling faulty securities worth $200 billion, to Fannie Mae and Freddie Mac through misleading statements, which violated the securities laws. Out of the 18 lawsuits the FHFA filed, 16 were transferred to Judge Cote in Dec 2011.

The judge maintained a very strong stand on the legal proceedings. She has rejected bids to dismiss the cases and is looking forward to hefty settlements. Alongside, she restricted depositions, document discovery, and organized a swift trial schedule.

This, however, did not go well with the banks. They accused the judge of proceeding with the litigation with a biased approach. Moreover, the banks alleged that the judge was pushing for a monetary compensation for the plaintiffs rather than logically settling the issue. The first trial against UBS AG is scheduled for Jan 2014. The banks await a 2nd Circuit ruling, expecting a dismissal of the UBS case.

Other petitioners include First Horizon National Corporation (FHN - Free Report) , The Goldman Sachs Group, Inc (GS - Free Report) , Morgan Stanley (MS - Free Report) , Ally Financial Inc, The Royal Bank of Scotland Group plc (RBS - Free Report) and Credit Suisse Group AG (CS - Free Report) .

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